ROCKIES WEBCAST SERIES Multi-State Legislative & Regulatory - - PowerPoint PPT Presentation

Multi-State Legislative & Regulatory Update

Presented by:

John R. Chadd, Brent D. Chicken & Diana S. Prulhiere

ROCKIES WEBCAST SERIES

September 15, 2020

Overview

• Colorado
• Wyoming
• Montana
• North Dakota
• Utah

Colorado

• Two proposed bills in 2020
• Overview of Senate Bill 19-181
• Two approved rulemakings

– Flowlines – Wellbore Integrity

• Ongoing joint rulemaking

– Mission Change – Cumulative Impacts – Alternative Location Analysis

Legislative Update

• HB 20-1126

– COGCC Director’s authority to approve APDs – Local governments with “House Bill 1041 authority”

• HB 20-1018

– Colorado Revised Statutes § 40-2-124.5 – PUC rule by 7/31/2021 re: renewable natural gas programs

• Both remain indefinitely postponed

Senate Bill 19-181

• C.R.S. § 34-60-102: COGCC Mission Revised

– Old = to “foster” oil and gas development “in a manner consistent with protection of”

• Avoid “waste” of natural resources

– New = to “regulate” oil and gas development “in a manner that protects”

• Non-development is not “waste”

Senate Bill 19-181

• C.R.S. § 34-60-104: COGCC Membership Overhaul

– Old = 9 volunteer commissioners – New = as of July 1, 2020: 7 full-time, paid commissioners with “more balanced” credentials

Senate Bill 19-181

• C.R.S. §§ 26-20-104,-106: Increased Local Control

– Old = state had exclusive jurisdiction to regulate

• Localities could not regulate contrary to COGCC action

– New = local authority to regulate “surface impacts”

• Local pre-permit siting approval
• Alternate location analysis
• Cumulative impacts

Senate Bill 19-181

• Increased Facility Monitoring/Controls

– S.B. 19-181 introduced a series of new legislative mandates to relevant state agencies to establish stricter rules in key areas

• Flowlines; Shut-In and Abandoned Wells
• Wellbore Integrity Testing
• Air Quality and Emissions Standards

Regulatory Update

• Completed rulemakings

– Flowlines – Wellbore Integrity

• Ongoing joint rulemaking

– Mission Change – Cumulative Impacts – Alternative Location Analysis

Flowline Rulemaking

• Adopted on 11/21/2019; became effective 20 days after

publication in the Colorado Register

• Amendments: 100 and 1100 Series Rules and Rules 215,

316C, 326, 333, 610, 711, 712, 713 and 906

• Fundamental changes

– Collection and publication of GIS data – Inspection + advance notice before re-servicing inactive lines/wells – Third-party verification of lines abandoned in-place – Various technical standards and reporting requirements

Wellbore Integrity Rulemaking

• Adopted on 6/10/2020; to become effective on 11/2/2020
• Amendments: 100 Series Rules and Rules 201, 207, 209, 301,

303, 308A, 308B, 311, 314, 316C, 317, 319, 321, 341, 603, 608

• Fundamental changes
• Increased Bradenhead

testing/monitoring

• Groundwater isolation
• Offset well evaluation
• Cementing and casing

requirements

• Blowout preventer systems
• Well plugging standards

Ongoing Joint Rulemaking

• Revised proposed rules published 8/17/2020
• Rulemaking hearings ongoing (concluding 9/23/2020)
• Adopted rules to become effective 12/1/2020
• Amendments: 200 – 600 Series Rules
• Fundamental changes

– Implement COGCC’s mission – Evaluate and address potential cumulative impacts – Adopt alternative location analysis process

Ongoing Joint Rulemaking

• Revised proposed rules published 6/19/2020
• Rulemaking hearings scheduled 9/28/2020 – 10/30/2020
• Adopted rules to become effective 11/2/2020?
• Amendments: 800, 900 and 1200 Series Rules
• Fundamental changes

– Same as 200 – 600 Series – Consolidating topics – Localized impacts, waste management, wildlife protection

200 – 600 Series Rules

• 200 Series: General Rules

– Requires compliance by operator’s contractors/subcontractors – Authorizes required tests/surveys; orders location closure; new Form 9

• 300 Series: Permitting Rules

– Implements cumulative impacts and alternative location analysis process – Creates new structure for COGCC review of permits (local governments) – Broader O&G development planning (Comprehensive Area Plans)

• 400 Series: Operational Rules

– Unifies spacing (transitions away from distinct rules for GWA) – Noise, lighting, metering, public water systems, tracking reused produced water – Transitions towards uniform statewide spacing

200 – 600 Series Rules

• 500 Series: Procedural Rules

– Defines “Affected Person” and establishes their participation rights – Revises process for variances (Director vs. Commission) – Simplifies hearing procedures (ALJs; new professional Commission)

• 600 Series: Safety Rules

– Revises certain setback requirements – Identifies inspection and groundwater sampling standards – Creates secondary containment procedures – Implements Operations Safety Management Program

800, 900 & 1200 Series Rules

• 800 Series: Localized Impact Rules

– Implements COGCC’s mission directive – Consolidates underground injection control rules

• 900 Series: Waste Management Rules

– Enhance protections of public health, safety, welfare, environment – Waste management, spill & release reporting, emissions, nuisance

• 1200 Series: Wildlife Protection Rules

– Establishes wildlife mitigation and protection plans – Describes operating requirements for “High Priority Habitats”

Montana

• No 2020 legislative session
• Regulatory amendment of

license and privilege tax rate

Legislative Update

• Montana’s Legislature convenes only in odd-numbered

years, ending its 2019 Session on April 25, 2019

• The next legislative session convenes in 2021

Regulatory Update

• Administrative Rules of Montana § 36.22.1242 amended
• Montana Board of Oil and Gas Conservation - Reports by

Producers – Tax Report – Tax Rate

• Lowers effective oil and natural gas tax rates

North Dakota

• No 2020 legislative session
• Regulatory amendment of certain

NDIC bonding rules

• Regulatory amendment of NDIC

gas flaring rules

• Regulatory amendment of NDIC

required royalty owner information

Legislative Update

• Similar to Montana, the North Dakota Legislature

convenes biennially

• The next legislative session convenes in 2021

Regulatory Update

• North Dakota Administrative Code § 43-02-03-15
• North Dakota Industrial Commission - Bond and

Transfer of Wells

• Changes aimed at decreasing and protecting against

long-term TA wells and avoided P&A/reclamation costs

Regulatory Update

• North Dakota Administrative Code § 43-02-03-28
• North Dakota Industrial Commission - Safety

Regulation

• Natural gas flaring issues

Regulatory Update

• North Dakota Administrative Code § 43-02-03-06
• North Dakota Industrial Commission - Royalty Owner

Information Statement

• Changes aimed at information provision

Utah

• Utah Senate Bill 148
• Regulatory amendment of

UBOGM enforcement rules and penalties

• Regulatory amendment of

statutory pooling rules

Legislative Update

• Utah Senate Bill 148: “overhaul” of Utah Code § 40-6-11
• Covers regulatory enforcement portions of Utah’s

conservation law

• Aimed at strengthening the imposition and collection of

administrative penalties assessed by the Utah Board of Oil, Gas and Mining

Regulatory Update

• In 2017, the Utah Senate altered the definitions of

consenting/non-consenting owners and allowed for pooling and spacing order retroactivity under Utah Code §40-6-2

• In 2018, the Utah Senate further altered Utah Code §40-6-2

the definitions of consenting/non-consenting owners and allowed for pooling and spacing order retroactivity

• The Utah Board of Oil, Gas and Mining initiated rulemaking

to address the statutory changes

Wyoming

• Changes to Statutory Pooling
• Change to Regulation of Commercial

Disposal Wells

• Wyoming Energy Authority

Established

• New WOGCC Rules for Submitting

and Challenging APDs

Changes to Statutory Pooling

• Wyo. Stat. 30-5-109
• Non-consenting unleased mineral owners now are subject to a

lower maximum penalty than that assessed against non- consenting mineral lessees

– For the first well drilled in a drilling unit, the maximum penalty is 200% of drilling costs and 125% of well equipment cost, and for any subsequent well drilled in a drilling unit, the maximum penalty is 150% of drilling costs and 125% of well equipment cost

Changes to Statutory Pooling

• Non-consenting unleased mineral owners now get a royalty

payment during the non-consent penalty phase

– Greater of 16% or the acreage-weighted average of the lease royalty being paid on leased tracts in the DSU

• After non-consent penalty paid in full, the non-consenting

unleased mineral owners have the option either to keep receiving the statutory royalty or participate in the well as working interest

• wners

Changes to Statutory Pooling

• A pooling order now expires twelve months after issuance if the

person authorized to drill and operate the force-pooled well fails to commence operations within twelve months of issuance of the pooling order

– Previously a pooling order could be valid indefinitely unless an expiration was included in the order

• Changes became effective on July 1, 2020 and are not retroactive

Change to Regulation of Commercial Disposal Wells

• WOGCC now has regulatory authority over both commercial and

noncommercial underground disposal of salt water, nonpotable water, and oilfield wastes into Class II Injection Wells (as defined under the federal Safe Drinking Water Act)

– Previously WOGCC regulated only noncommercial disposal and WY DEQ regulated commercial disposal – To implement this change, WOGCC has released proposed rules for comment – Change became effective July 1, 2020

Wyoming Energy Authority Established

• New state agency named the “Wyoming Energy Authority”
• Merged together the Wyoming Pipeline Authority and the

Wyoming Infrastructure Authority

• Authority includes power to acquire, construct, hold, use, lease,

and sell pipelines, transportation infrastructure, distribution facilities, and advanced technology facilities for natural resources associated with energy or carbon dioxide capture

• May incur debt by issuing bonds
• Effective July 1, 2020

New WOGCC Rules for Submitting and Challenging APDs

• Historically Wyoming had a pure “race to permit” regulatory

regime regarding the filing of Applications for Permit to Drill (“APDs”)

• Additionally, the WOGCC rules did not provide for one operator to

be named as operator of an entire drilling and spacing unit (“DSU”)

• Increased interest in Wyoming in recent years led to a record

number of horizontal well APDs being filed, which overwhelmed the capacity of the WOGCC staff to process APDs and also led to a large increase in horizontal well APD protests between operators

New WOGCC Rules for Submitting and Challenging APDs

• WOGCC promulgated new Section 8(l) in Chapter 3 of the WOGCC

Rules, which provides that for any given DSU for horizontal wells, there is a restriction as to who may submit an APD in that DSU

– Only APDs from the operator of a spud or completed well in that DSU may submit APDs for that DSU – In the event there is no spud or completed well in that drilling unit, only the operator with the oldest pending or approved APD may submit further APDs in that DSU or have its existing APDs extended – By implication, in the event there are no spud or completed wells in a drilling unit and there are also no pending or approved APDs in that drilling unit, then the traditional race-to-permit rules apply

New WOGCC Rules for Submitting and Challenging APDs

• WOGCC also promulgated new Section 8(m) in Chapter 3 of the

WOGCC Rules, which states that for any operator who cannot submit or extend an APD in a DSU pursuant to 8(l), such operator may file APDs in certain limited time intervals

• At certain times, this 8(m) filing acts as a protest and counter-filing

against a new APD filed by the current operator in control of the DSU, and at other times the 8(m) filing may be made because of a lack of drilling activity in the unit by the operator in control

New WOGCC Rules for Submitting and Challenging APDs

• If the operator in control files a new APD, any other party owning an

interest in that DSU may file notice of intent to file an “8(m) hearing application” within fifteen days after receiving the operator’s APD notice, and then file the complete 8(m) hearing application within thirty days after receiving the APD notice

• An 8(m) application includes an APD by the 8(m) applicant
• The non-control party may also file an 8(m) hearing application within 15

days of the two-year anniversary of the most-recent spud date in the DSU

• The operator in control of the DSU will receive notice of the 8(m) hearing

application and may decide to protest the application if it so desires

New WOGCC Rules for Submitting and Challenging APDs

• Section 8(m) describes the possible outcomes of an 8(m) hearing:

– If the Commission denies an 8(m) application, the applicant’s related APD(s) shall be denied – If the Commission approves an 8(m) application, relating to the “initial” APD in a DSU (APD filed by operator in control pursuant to 8(l)), the protesting operator in control’s APD shall be denied – If the Commission approves an 8(m) application relating to an APD extension, the protestant’s APD(s) shall be denied, but the protestant shall have an exclusive right to file an APD within thirty (30) days of the expiration or withdrawal of all the 8(m) applicant’s APD(s)

New WOGCC Rules for Submitting and Challenging APDs

• Contested hearing tiebreaker: in an 8(m) contested hearing, if the

WOGCC deems equal the evidence presented by the parties, the WOGCC shall approve the application or the protest (as applicable) of the party who has secured the largest percentage of working interest ownership in the DSU, combining with it the working interest ownership of other working interest owners who have expressed written support to partner with such party in the proposed well(s)

Questions?

Materials Disclaimer

These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the authors and are not individualized legal advice. It is understood that each case and/or matter is fact-specific, and that the appropriate solution in any case and/or matter will vary. Therefore, these materials may or may not be relevant to any particular

• situation. Thus, the authors and Steptoe & Johnson PLLC cannot be bound either

philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney-client relationship with the authors or Steptoe & Johnson PLLC. While every attempt was made to ensure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed.

Thank You!

Brent D. Chicken

Steptoe & Johnson PLLC Dominion Towers 600 17th Street, Ste. 2300 South Denver, CO 80202 brent.chicken@steptoe-johnson.com 303-389-4364

Diana S. Prulhiere

Steptoe & Johnson PLLC Dominion Towers 600 17th Street, Ste. 2300 South Denver, CO 80202 diana.prulhiere@steptoe-johnson.com 303-389-4365

John R. Chadd

Steptoe & Johnson PLLC Dominion Towers 600 17th Street, Ste. 2300 South Denver, CO 80202 john.chadd@steptoe-johnson.com 303-389-4316